Question

A firm with a 14% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows: 0 1 2 3 4 5 Project M -$24,000 $8,000 $8,000 $8,000 $8,000 $8,000 Project N -$72,000 $22,400 $22,400 $22,400 $22,400 $22,400 Calculate NPV for each project. Round your answers to the nearest cent. Do not round your intermediate calculations. Project M    $ Project N    $ Calculate IRR for each project. Round your answers to two decimal places. Do not round your intermediate calculations. Project M      % Project N      % Calculate MIRR for each project. Round your answers to two decimal places. Do not round your intermediate calculations. Project M      % Project N      % Calculate payback for each project. Round your answers to two decimal places. Do not round your intermediate calculations. Project M      years Project N      years Calculate discounted payback for each project. Round your answers to two decimal places. Do not round your intermediate calculations. Project M      years Project N      years Assuming the projects are independent, which one(s) would you recommend? -Select-Only Project N would be accepted because NPV(N) > NPV(M).Both projects would be accepted since both of their NPV's are positive.Only Project M would be accepted because IRR(M) > IRR(N).Both projects would be rejected since both of their NPV's are negative.Only Project M would be accepted because NPV(M) > NPV(N).Item 11 If the projects are mutually exclusive, which would you recommend? -Select-If the projects are mutually exclusive, the project with the highest positive IRR is chosen. Accept Project M.If the projects are mutually exclusive, the project with the highest positive MIRR is chosen. Accept Project M.If the projects are mutually exclusive, the project with the shortest Payback Period is chosen. Accept Project M.If the projects are mutually exclusive, the project with the highest positive IRR is chosen. Accept Project N.If the projects are mutually exclusive, the project with the highest positive NPV is chosen. Accept Project N.Item 12 Notice that the projects have the same cash flow timing pattern. Why is there a conflict between NPV and IRR? -Select-The conflict between NPV and IRR is due to the relatively high discount rate.The conflict between NPV and IRR is due to the fact that the cash flows are in the form of an annuity.The conflict between NPV and IRR is due to the difference in the timing of the cash flows.There is no conflict between NPV and IRR.The conflict between NPV and IRR occurs due to the difference in the size of the projects.Item 13

Answer 1

	Year	Project A	PV	cumulative cash flow	cumulative PV cash flow
	0	-24000	-24000
	1	8000	7017.54386	-16000	-16982.45614
	2	8000	6155.740228	-8000	-10826.71591
	3	8000	5399.77213	0	-5426.943783
	4	8000	4736.642219	8000	-690.301564
	5	8000	4154.949315	16000	3464.647751	NPV
					19.86%	IRR
			payback period	3.00	discounted payabck period	4.15
			PI	1.144360323
	Year	project B
	0	-72000	-72000	-72000	-72000
	1	22,400	19649.12281	-49,600	-52350.87719
	2	22,400	17236.07264	-27,200	-35114.80456
	3	22,400	15119.36196	-4,800	-19995.44259
	4	22,400	13262.59821	17,600	-6732.844379
	5	22,400	11633.85808	40,000	4901.013702	NPV
					16.80%	IRR
			payback period	3.21	discounted payabck period	4.32
			PI	1.068069635